FINANCIAL ACCOUNTING Session 01 Certificate in Business Management - - PowerPoint PPT Presentation
INTRODUCTION TO FINANCIAL ACCOUNTING Session 01 Certificate in Business Management (CBM) Session Outline Definition of Accounting Objectives of Accounting Users of Accounting Information Book-keeping vs. Accounting Accounting
User Interests Investors Profitability/ Security Management Financial progress and the status Employees Job security/ Pay and benefits Lenders Repayment capacity Government Employment creation/ Tax payable Suppliers Financial health/ Liquidity Customers Business stability Public Local welfare/ Environmental concerns (CSR) Competitors Benchmarking
Source Documents Prime Entry Books General Ledger Trial Balance Financial Statements
Books of Prime Entry Transaction Type Source Document
Sales Journal Credit Sales Sales Invoice Purchases Journal Credit Purchases Purchase Invoice Return Inwards Journal Returns Inwards Credit Notes Return Outwards Journal Returns Outwards Debit Notes Cash Book Receipts and Payments of Cash and Cheques Cheque Counterfoils, Paying in slips, Till Rolls Petty Cashbook All small Cash Transactions Petty Cash Vouchers General Journal All transactions not recorded elsewhere Everything else not covered by above
– Example: Selling or holding an investment.
1. Business Entity Concept
the business.
business, by looking at them from the point of view of the business and not from the point of view of the owner.
treated as incomes and expenses of the business.
has two equal aspects (effects).
– Example: – Purchased a stock worth Rs. 2,000
1st Aspect (Effect) Rise in stock by Rs. 2,000 2nd Aspect (Effect) Fall in cash by Rs. 2,000
terms only, are recognized in the financial statements.
– Example: Skills and competence of employees cannot be measured in monetary terms, however salaries paid to them can be.
the accounting transactions.
foreseeable future.
assumed that the entity has neither the intention to liquidate or cease trading.
– Example: Classification of Assets in to current and non-current assets.
accounting transactions for revenue when earned and expenses when incurred.
taken into consideration, irrespective of the date of receipt or payment
– Example: Electricity Bill payments
so that the complete impact of a business transaction can be seen within a single reporting period.
benefit from its use.
– The firm owns or controls the right to use the item – It is probable that the future economic benefits embodied in the asset will flow to the entity – The asset cost can be measured reliably “Asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity “
something which supports the primary operations of the organisation (e.g. buildings).
– Assets whose benefits are expected to last more than one year from the reporting date. – Examples: Long term investments/ Land/ Equipment/ Buildings
– Assets an organisation expects to use within one-year time from the reporting date – Assets which are held for the purpose of being traded – Examples: Inventory/ Cash and Cash equivalents/ Receivables/ Prepaid expenses
party. Examples- Bank loans/ Trade payables
– The entity has a present obligation – It is probable that an outflow of resources will be required to settle the
– A reliable estimate can be made of the amount of the obligation “A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits”
– A liability which the entity expects to settle after one year from the reporting date. – Example- Long term bank loans
– A liability which the entity expects to pay off within one year from the reporting date. – Examples- Short term borrowings/ Trade payables/ Tax liabilities
Total Assets – Total Liabilities
Examples: Share capital/ Retained earnings/ Revaluation surpluses “Equity is the residual interest in the assets of the entity after deducting all the liabilities”
– Initial and additional contributions of owners – Withdrawals made by owners – Income and Expenses (Profit)
such increases caused by the contributions from owners. “Income is increases in economic benefits during the accounting period in the form of inflows
than those relating to contributions from equity participants.”
– Revenue : Income earned in the ordinary course of business activities – Gains: Income that does not arise from the core operations of the entity.
– Sale revenue generated from the sale of goods – Interest received on a bank deposit – Gains by selling an equipment
except for such decreases caused by the distributions to the owners. “Expenses are the decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants’
– Salaries and Wages – Utility Expenses – Administration Expenses – Finance Costs
Classify the below accounts into the elements of accounting.
– Equipment and Furniture – Accounts Receivable – Advertising Expenses – Bank Loan – Commission Income – Cost of Sales – Delivery Expenses – Depreciation Expenses – Income Taxes Payable – Prepaid Insurance – Interest Income – Inventory – Repairs and Maintenance – Telephone Expenses – Salaries Payable
Financing Activities